Closing Bell - Closing Bell Overtime: Big Risks Mounting 06/08/22

Episode Date: June 8, 2022

Falling earnings and rising fuel prices weighing on stocks … but can the market manage to brush off the big risks in the long run? Dan Greenhaus of Solus Alternative Asset Management gives his forecast. Plus, Fundstrat’s Tom Lee makes the case for a soft landing and why that scenario is looking more likely. And Mike’s Santoli’s Last Word on some big market “pain points.”

All right, Sarah, thanks so much. Welcome, everybody, to Overtime. I'm Scott Wapner. You just heard the bells. We're just getting started right here. In just a few minutes, I'll speak live to Fundstrat's Tom Lee, who continues to argue that stocks can rally a lot in the second half of the year. We will test him on that call and where he thinks the real money is going to be made in the months ahead. We begin, though, with our talk of the tape, whether this rally back from the lows is about to run into a brick wall of rising fuel prices and falling earnings. Let's ask Dan Greenhouse of Solus Alternative Asset Management. He's here with me today at Post 9. It's nice to see you. Welcome back. Thank you, sir. That is kind of the question

whether we're about to run into something earnings Earnings, you're already getting whiffs of disappointments. You had crude oils over 120. I do see that nat gas rolled over really hard today. I mean, that's a 10% swing. But what are you watching? How do the markets feel to you right now? Yeah, listen, clearly, as I'm sure everyone on the network has been harping on, there's chop. And I think that speaks to the level of uncertainty that market participants are feeling right now. You have the CPI number on Friday. You get the Federal Reserve next week. And I think that speaks to the level of uncertainty that market participants are feeling right now.

You have the CPI number on Friday. You get the Federal Reserve next week. And shortly thereafter, you'll have an updated earnings season. And the backdrop of all this, of course, is high commodity prices, high oil prices, and basically $5 national gasoline prices. So there's a lot of push and pull right now. I think the bias probably is to the upside in the short term. Why do you think that? Well, listen, I think a number of us have talked about this for some time over the previous weeks. There were things that suggested the market was due for a bounce for technical

reasons. Everybody got so bearish. The internals of the market were sort of set up for something resembling a bounce. And so we could bounce up into the low to mid 4000s. And that's sort of what we're in the process of doing. Mid-4,000s. So you think we have some more room to go? Listen, if we got up to 4,400, I wouldn't be surprised. Something like that. That'd be like a 12% or 13% bounce off the lows, perfectly in line with what historical analogous situations might suggest.

But even if that happens, you're still left with the backdrop that you sort of articulated and I expounded on, the oil prices, the gasoline prices, the earnings backdrop. I mean, you just better get the CPI to go your way this Friday if you think you can achieve the levels that you're potentially talking about, right? And this is actually a really important point. I've seen people on the network constantly talking about inflation coming down. And I just want to be clear to the viewers and to you, my good friend, inflation at a headline level is going to come down almost no matter what happens, because we're lapping a year ago when the index was going up 0.6, 0.7 percent per month. Huge numbers that almost surely are going to result in a decline in the headline number. But what you really want to focus on is the month over month

number. And on Friday, we're going to get a headline month-over-month number. That's the consensus expects 0.7, the core 0.5. Annualized out, that's 6, 7, 8% inflation. That's not the type of thing that's going to give the Fed comfort that inflation is moving in their direction, even though the headline number is going to start and is in the process of declining. What are you expecting from the Fed? And let's just go beyond next week. They're going 50. You know it. In July, they're going 50. They told us, unless there's some, you know, they pull some rabbit out of the hat. And then after that, it was thought, OK, maybe they'll pause. I feel like they've thrown cold water on that, too, in a couple of interviews on this very network within the last couple of weeks. What do you expect? Yeah, I don't see why they would pause. I know Sarah did the interview with Lael Brainard. Yeah. And one or two other people. Leesman had Mester.

I mean, it was the same message from each person. Yeah, and listen, the idea that they were going to pause was like a momentary floating. And conceptually, I think it makes sense. You want to front load hikes with inflation this high and then maybe take a minute and see to the extent to which these hikes are having an effect. The problem, as we've said for decades and decades, is monetary policy operates with long and variable lags. Those long and variable lags are not three to six weeks. There is this view, though, that inflation has peaked, right? And it's going to incrementally come down. And that's going to take the Fed hikes off the hook.

And that narrative is in the ether. I mean, it's out there that the Fed's going to be aggressive in June, aggressive in July, and then magically towards the end of the year, inflation is going to cooperate. So they're going to be able to take their foot off the gas a little bit, and that's going to further stimulate stocks. Do you buy that in any way? 100 percent, I buy the argument. It is a perfectly reasonable and legitimate. You do buy it. To the extent it's a legitimate argument. It's not as if we legitimate- You do buy it. To the extent it's a legitimate argument. It's not as if we're saying stock prices are going to go higher because Merlin's going to emerge from history and magically levitate them.

Like, there is an argument to be made that if the inflation data cooperates, you get, God willing, you get some sort of a ceasefire in Ukraine that allows food supplies to be more widely distributed. So that allows the Fed to sort of take their foot off the brake as the year progresses. Stocks have already incorporated some of the earnings declines, and that allows sort of a second half levitation. I buy that. That's a legitimate argument. The problem with that, though, is once you're done with that, you are left with the ramifications of the most rapid tightening cycle in a lot of respects in our lifetime. I mean, that's a bit of an overstatement, but we'll go with it for now.

And there's just, and I've said this to you for months and months and months, and I know people are tired of hearing me say it, it's just really difficult to believe the Fed is going to thread this needle, tighten just so much to bring inflation down just enough. Well, as history suggests, they're not going to be able to do it. What about. So the idea that, you know, valuations, this is kind of the Mike Wilson view over at Morgan Stanley. Valuations have already corrected enough. Right. The multiples come down on the markets. Seventeen, seventeen and a half times, whatever, whatever you want to call it at this particular time. Now, the earnings correction needs to happen and it's going to happen. And you're already getting whiffs of it. Right get microsoft people trying to explain that away that's just fx then you get a note from katie hubert e morgan

stanley well apple's earnings especially from the uh services business could be hit a little bit because of a slowdown in the app store i'm not really worried about that yet intel talks down its own business today that's just intel they got a lot of problems. We already know about all that. Target, you know, oh, we're going to have to discount a lot. No, it's just a one quarter thing. Cornell, he messed up. He admitted it. But they're going to get the ship back, you know, in smooth sailing. What about the earnings picture, though? Yeah, listen, it's hard to say there are so many just one-off coincidences, if you will. I mean, clearly something's going on.

Earnings are going to have to come down. The one pushback I would make on this, and believe me, I'm full on in the camp that thinks earnings estimates have to come down. I have believed that for quite some time. The one pushback I would note is earnings estimates in a lot of respects always come down. And this is sort of the John Golub argument that he makes on the network I've seen that that generally speaking earnings come down and then eventually we beat them and that allows stocks to to move higher from there I took a look before I came on the network back in 2016 earnings estimates or actual earnings ended up being 10 percent lower than estimates to start the year but the stock market was still 10 percent higher by the end of the year. The point being, the fact that earnings estimates have to come down

doesn't necessarily mean that stock prices have to come down. However, OK, all of that may be true, but we're in a much more fragile state right now than perhaps we have been at those times in the past. And I think that's entirely correct, because again, this gets back to everyone makes the point and it's a broken record, but it's true. You don't have the comfort of the Fed put, so to speak. The Federal Reserve doesn't have your back because inflation is so high. And that's why the monthly CPI, the monthly PCE data points are so important for credit, for equity, for fixed income investors of all stripes. Mostly because the credit markets are acting, for the most part, just fine. So the Fed is not going to intervene or have this put reemerge

if the stock market goes down a fair amount more, if the credit markets aren't acting up. Well, you can argue both of them. They've kind of made the point. Yeah. Already they have. No, that's fair. But you can sort of derive recessionary pricing, if you will, from both equity and credit. We don't need to get into the math. No, I mean, it's fair, but you can sort of derive recessionary pricing, if you will, from both equity and credit.

We don't need to get into the math. No, but I mean, it's fair. The wealth effect, I get the destruction of wealth and people rein in their spending. Sure. And you end up having a recession. Stock markets tell you something about the future. But that's a lot different than the wheels grinding to a halt in the way that makes this country's business function. Sure.

A little bit different. Sure. And I agree with that entirely. But again, in the past, to reinforce your point, when the market has declined, certainly in the post-GFC era, but even to some degree before. Global financial crisis for those playing. I apologize. That's my job. The Fed has been able to, so to speak, ride to your rescue because inflation has been cooperative. When you have a CPI at 6, so to speak, ride to your rescue because inflation has been cooperative.

Right. When you have a CPI at 6%, 7%, 8%, 9% year over year, the Federal Reserve cannot take its foot off the brake, so to speak. And again, even if markets bounce, even if credit spreads tighten further, you're still left with the ramifications of what the Fed is in the process of doing. And the mix is arguably one of the most difficult investing environments that I, in my lifetime, I would argue, even even older people than me. All right. Let's broaden the conversation out and bring in BNY Mellon's head of equities, Alicia Levine and Maryland Bank of America private bank CIO Chris Heisey. It's great to have everybody with us. Alicia, I'll go to you first.

It's earnings. It's inflation. Those are the most important things, obviously. You want to react to anything that Mr. Greenhouse has said? And what's your current view of the market where we are here? Look, I think you just had a great conversation. And in many ways, I agree with Dan. The real issue is that, yeah, you can have a rally here into second quarter earnings season, but you're probably going to have a round of cuts coming into that second quarter earnings season. It's pretty clear there's a mismatch of inventory levels and demand patterns all over the supply chain it can't just be one company so we're going to see cuts on the discretionary side some of those big box retailers and then on top of that you know the discussion

about peaking inflation is really well taken. We probably have a peaking on the core inflation rate as goods prices come down. Nobody's arguing with that. But what do you do with a headline number that stays at 8 percent because of energy and food? It still requires the Fed to act and to act hard. And so, you know, it's not enough to say inflation is peaking. We're going to be left with very high headline inflation numbers that the Fed is forced to react to. But if we do have lower numbers sometime in the future, I don't think the Fed pivot is

enough to really stabilize the market here, because the earnings for 2023 aren't believable and they have to come down first. So, Chris Heisey, you make the argument that we're a little more than halfway through a cyclical bear market, but that the secular bull market is actually still intact? Yeah, I think Dan touched on this a little bit before. You know, earnings are going to have to come down. We know that. The analyst community usually waits a little bit until i have a tough conviction to to lower them

the market those that's already probably one of the reason why it was like the jaguars to win the super bowl i mean what are they waiting for well they wait for confirmation from the company's right and the companies have yet to fully deteriorate their own earnings and that's coming we know that uh... in terms of the secular bull market you know innovation automation transfer of technology across the entire energy spectrum the amount of growth

that's going to happen in the next 10 years we're so focused on friday's cpi number we're not focused enough on what's going to happen in the next three to ten years which is a resumption of the secular bull market because earnings are not going away they're going to get reset. You know that. Multiples happen first then earnings. The Fed may not come to the rescue this time but all it takes is a pause once inflation peaks. And I would argue that so looking at CPI we

should focus on the Fed's gate. Which is PCE. And that is coming down not as fast as we want. And not to the level they want. Yet. But that's what ultimately gets to the point. Dan Greenhouse, I mean, bear markets, you talk about that. I mean, it's price, it's time. Price has corrected a lot in an awful lot of stocks. Time, though, doesn't feel like

we've been in a bear market for, if you want to say, long enough, quote unquote. And that sort of flies in the face of some of these predictions that, oh, this was just a correction. This is not a full-fledged bear market because we technically didn't go down full 20%. We went down like 19.7. Yeah, I saw this debate with Belsky yesterday. This is ridiculous. We fell 19.5% instead of 20%, and that's somehow not a bear market. I mean, speaking as an investor, we have money, like, you know, for a lot of people in technology particularly, but the market in general, this is a bear market.

And I would take issue, and I know you would agree, with the idea that it hasn't been long enough. I mean, the unprofitable tech names have been in a bear market for a year and a half. There was a point where 70% of the stock market or something was down 20% from the highs at least. Those are extraordinarily large numbers. And just because recently Apple and Amazon and Google and the like have caught up on the downside doesn't mean, I would argue, that the broader market hasn't been in the bear market for much, much longer than the headline would suggest. Alicia, where do I want to be positioning right now, given the view of this panel

and what we think lies ahead for all of the risks that you suggested are out there? Look, we do think you probably retest thirty eight hundred and possibly lower over the next few months as the earnings come in. So we're pretty much defensively positioned here. We're very overweight energy. We're overweight health care where overweight utilities foods on the staple side but we also think there is select opportunities on the tech side even though that feels unpopular right now we do think actually enterprise in this particular downturn will be less cyclical

than in previous cycles just because of how companies have to manage their businesses we think there's capex and the reshoring to America is interesting on the industrial side as well. And we're actually starting to look at financials, believe it or not, because we think that yields have made the big move. And if that's the case, the balance sheets are probably fine. And financials could be an interesting place to start picking up some stocks. What about this earnings point, Chris, that Alicia makes around tech?

I mean, some of the whispers already coming out aren't great and they're likely to continue. And you can, you know, if they want to blame FX, that's fine. It still drags earnings. It may not be a horrible reason compared to a fundamental backdrop that's deteriorating. But nonetheless, if earnings are coming down, it doesn't really make a difference for why they're coming down. They are. Microsoft, maybe we're worried about Apple now. Intel tells you that things aren't great. That's like the tip of the iceberg. It feels like three companies we barely heard from anybody. Well, you've got a lot going on there, Scott. There's more cross-currents in the East River in the whole argument around tech.

But I'm going to go back to this. Price is before earnings. Earnings are coming next. The dollar is a factor. The supply chain is a factor. But the biggest reason why tech earnings are coming down outside of those two factors is the fact that aggregate demand was so high and that gap between what is normal and that high level of aggregate demand is very wide. And as that comes down, it's going to feel like earnings are going to come down a lot.

But the reality is they're not going to come down that much because there's still a high level of aggregate demand. And that's why I think at some point the tech sector is telling us that these are the bargains not yet, not yet, but close to the bargains not yet not yet but close to the bargains of the next five years because there's still going to be growth needed in this economy and the digitization of the world economy is still moving forward so tough go right now about to get better bargains come the fall and i think dan hit it on the head we're about to head into another earning season a lot of companies are going to try to throw it all into that second quarter for the third quarter guidance.

Speaking of, Dan, energy. Yeah. Everybody loves energy. Yeah. Our guests like energy. You like energy. Do too many people like energy? No.

I mean, listen, we've been involved in the energy space for maybe two years now for, I think, different reasons from a lot of other people, particularly the focus on ESG had led a lot of names to do rate to a degree that made them extremely attractive. And I think we were early to the idea of the Wall Street imposed restraint on corporations that now is very well known. I think the issue you have now is refining capacity is not sufficient. So even if we wanted to pump more oil, there's that.

We don't have enough crews. So even if you wanted to pump more, there's that. So there's all these sort of secular tailwinds to the space that remain in place. Obviously, if there's a recession sometime in the next, call it 12 months, that's gonna be be something that we're going to have to address. But for the immediate future, I think the space retains a level of attraction for those secular reasons that remain in place. Alicia, I'll give you the last word because something that jumped out

to me from your notes to our producers today really jumped out. And you say avoid passive investing in 2022. So we're back to like you need a real person to run your stuff because the ETFs just won't cut it, at least not actively managed ones. You need a human being. Let's just point out that the energy sector has outperformed the S&P by 75 percent year to date. And if you were in a passively managed fund, you probably had 4 percent energy in your ETF and roots of 5 percent. And you didn't do much better than that. And so this is one of those years where the short-terration stocks are working, dividend stocks are working, more value than growth. And if you weren't positioned for that, you were caught in a very huge downdraft.

Now, the largest names have not yet come down the way 70 percent of Nasdaq has come down. The big question is, is that going to happen? That's the big question. That's what's holding the index up. But if you think earnings are coming down, the multiples can't hold either. We're at 17 times forward earnings. That's the average for 25 in the last 25 years. If earnings go lower, the multiples going lower also that's the big question find a human being to manage the money we're going to make that as i said the last word i loved it guys thanks so much it was a great conversation i really appreciate your time it's dan greenhouse of course chris and alicia joining us there and i'll see everybody again soon

up next the case for a soft landing fun strstrat's Tom Lee says it's becoming more likely. He will tell us why. We'll debate that, of course. Overtime's back in just two minutes. We're back in overtime. Tech stocks under pressure again today. The Nasdaq now down nearly 23% this year. Our next guest, though, is betting on a turnaround coming as we head into the back half of the year. Joining us now is Tom Lee. He is the head of research at Fundstrat, of course,

a CNBC contributor as well. And he made his way to Post 9. It's good to see you. Great to see you, Scott. You sat down, you said, I'm feeling better about this market. And why are you feeling better? Because there are a lot of issues out there, Tom. That's right. I know the Fed's got a tough job. And I think all of our clients are just watching inflation prints and nervous about Friday. But it looks like a lot of things are happening around the economy and the world that are helping the Fed. And I think one of those is that I think there's a lot of goods that are going to start seeing discounts, both cars and apparel, furniture, everything Target and Walmart have. And now I think housing is cooling pretty

dramatically. And that's going to lead to both job loss and some wealth effect. And so I think the Fed has the market doing its work for it, which means investors don't have to worry about hawkish surprises. Still sticking to your choppy now, but strong second half of the year. And we can reach some levels that look, you know, at times unattainable, to be frank. Yeah, that's right. I think a lot of folks think, hey, look, the S&P won't see 4,800 again for five years. But we have to realize there's some bullish themes really coming together. One is the labor market is creating wage pressures and that's solved with technology and automation. That's great for tech. I think eventually the war ends with Russia and Ukraine,

and then we have a post-construction build and commodity prices fall. That's really good for U.S. companies. And now that stocks have come in, I mean, tech is cheaper than it was in 2003 after the dot-com, and there's been a real loss of faith in owning some of these names that are important. So I think there's a lot of upside surprise.

You don't have any concerns whatsoever about oil pushing towards 130, nat gas pushing towards $10. I mean, we can stop there, but then I would continue and say the very stocks that you like so much, these large cap technology stocks, earnings are, I feel like, suddenly in question. Microsoft told you what they did. They're now concerned about what Apple might deliver as a result of the services business, Intel. Not that they're in the same ballpark, obviously, as Microsoft and Apple, but you catch my drift. Yeah, I do. Nobody wants earnings cuts. I think that that feels like it's another leg down for folks. But I think that the surge in oil is almost a barometer of the progress of the war. So I

think as long as there's war, the OECD had a great report today showing that half of the inflation surge this year is really war related. And once the war comes to a conclusion, I think we see oil and food prices really start to disinflate, but it's painful now. I don't think that means tech has downside. You know, if we have estimate cuts, but it's a lot of it's priced in, then it's just a risk reward question. Why do you believe it's priced in? I mean, that's critical to suggest that it's priced in, because I'll look, I'm pulling up, you think about your answer as I pull up Microsoft at 270, and I've got Apple, you know, can't get back to 150.

It's at 148. Sure. So what about that? Well, I think Microsoft is not that far off from where it was when they preannounced some of the FX impacts. You know, Facebook maybe 10 days ago had COO depart. Facebook's higher than it was there. So I think we might have a one-day effect, but the stocks are drifting higher. And that tells me a lot of bad news is priced in. And in fact, there's quite a lot of tech insider buying as well. So I don't know if executives

would be buying stocks if they thought there was a 30 percent haircut coming to estimates, but maybe something. Let me ask you this. If the Fed hikes by at least 50 basis points in September. Does that throw off your target for the end of the year? Yes. I mean, to the extent that if the Fed had to do 50 because inflationary pressures are accelerating, that would put a lot of risk to a thesis. But on the flip side, I think that goods prices are deflating fast. And I know there's pressure on services. And I think CPI is everyone's

concern. But if inflationary pressures are tracking to what the Fed is think are better, I think markets rally. And that's kind of what we're leading that I think the market's overshot and are really focused on the left tail that we have a hard landing coming. If we have a growth scare, stocks are attractive. And you don't think that we're going to have a recession? I mean, eventually there's a recession. You know, there's always every five, there's a recession every five years. So in any single year, it's a 20% chance of a recession. But do I think it's more elevated than 20? Maybe. But I think stocks have priced in almost a full blown recession. So in a way, that's why we're leaning more optimistic. Are you looking for any

move from the Fed in September? Because if everything is based on the Fed pausing after June and July, what else do they need to tell you, Tom, to say we're probably going in September? How much is the only question left? Correct. That's right. The Fed's on a path towards neutral. And I think 25 or 50, look... If not beyond. Yes.

If not beyond. Correct. I think there's a series of hikes coming, but it's really the Fed being more hawkish than expectations that alarms markets. And if we're on a glide path towards 25, even 50 in September, but it's because they need a few more prints of improving data trends, I don't think that scares markets as much as they need to go to 75. You still sticking with Bitcoin? Yes. I think Bitcoin is, first of all, acting far better than people expected. You know, people talk about a crypto winter.

And the last crypto winter was 2018 and Bitcoin was down 90 percent. Bitcoin's down 50 and it's already called a crypto winter was 2018 and bitcoin was down 90 percent bitcoin's down 50 and and it's already uh called a crypto winter there's big job cuts coming from coinbase and bitcoin is still holding at 30. so i think it's acting far better than people expect and again it's uh you know it's a risk on assets so i think to the extent the nasdaq and bitcoin rally it's helping us be more comfortable that the market's already bottomed. I mean, there was a suggestion within, not even a suggestion, I mean, the proof was in the pudding. You looked at the correlation between the NASDAQ and Bitcoin broke down. It was non-existent a week ago.

You don't think that correlation has broken down? Right? There were days where the NASDAQ rallied. Bitcoin was still down. Yes. And, you know, Bitcoin, I think, you know, took some gut punches because of what happened with Terra and some stable coins. And, you know, there there are other reasons to sort of think Bitcoin is affected by things like China reopening. But to the extent that China normalizes, that means income flow back into Asia.

This year, during Asia trading hours, Bitcoin's been down. So that dynamic can change as China's economy opens. And I'd say even if the correlation changed for a few days, it doesn't mean that's really a change in the relationship. If the S&P is going to 4,800, where's Bitcoin going by the end of the year? I think Bitcoin is going to make its way to flat for the year and possibly up. Tom Lee, you're not afraid to make bold calls. And we'd like to hold you on them, too. I appreciate you being here.

Great to see you, Scott. That's fun strats. Tom Lee joining us here in overtime to our Twitter question of the day. Now, we want to know, what do you think will be the best performing sector in the second half of the year? Will it be Tom Lee's tech? Will it be energy, financials or something else? Head to at CNBC overtime on Twitter. Cast your vote. We will reveal the results at the end of the show, as we always do. Up next, finding opportunity in retail. Our next guest runs a fund

specializing in that space. We'll find out where he is finding real upside in two minutes. It's time for a CNBC News Update now with Shepard Smith. Hi, Shep. Hey, Scott. From the news on CNBC, here's what's happening. The suspect arrested outside Justice Brett Kavanaugh's home overnight, now charged with attempted murder. Law enforcement officials tell us he was carrying a gun, knife, pepper spray, burglary tools, and more.

And that he said he was there to kill Justice Kavanaugh. The suspect scheduled to appear in front of a federal judge this afternoon. A group of more than 90 women, including U.S. Olympic gymnast Simone Biles, Michaela Maroney and Allie Raisman, filing claims against the FBI today. They're seeking more than a billion dollars in damages. They say the bureau mishandled the sexual abuse investigation against the former Olympic team doctor Larry Nassar, that agents slow walked it for more than a year while Nassar was able to molest other young women and girls. Tonight, the emotional

testimony on Capitol Hill today from the families of the Uvalde victims, a diet that doctors say could help with diabetes, and the latest on the golfers heading to the Saudi-backed tour on the news. Right after Jim Cramer, 7 Eastern, CNBC. Scott, see you then. That is a big story, Shep. Thank you. Shepard Smith, we'll see you then. Target's second warning in a month this week has raised even more questions now about the state of retail. Our next guest runs a fund specializing in that space. John Sanmarco is portfolio manager of the Connected Consumer ETF for Newberger Berman. He is with me live right now. It's good to see you. Welcome to our program.

Thanks, Scott. Good to see you. You know, I guess it depends on which retailer you're talking about to see what the consumer is doing. But generally speaking, what is the state of the consumer in your mind right now? Yeah, you put that question very well. I think to understand the state of consumer and retail, we really need to go back to the beginning of this pandemic when every retailer, every supplier was panicking about what would happen to demand. And so they shut off the supply spigot to the greatest extent possible. And then we spent the next two years with surprisingly buoyant consumer demand. And since retailers, anything they could get their hands on, they could sell at full price. So retailers really had a lot of wind at their

tail, including the fact that consumers couldn't go out and spend on vacation or dining out, et cetera. And now fast forward to today and the target print announcements that you touched on, really all of that is starting to unwind. Inventory has caught up, and in many cases, it has more than caught up exactly as demand is starting to wane. Gas prices are becoming an issue. Consumer confidence, interest rates, et cetera, have becoming an issue. So, I think we're going to go from what has been a fairly easy environment for some retailers, certainly the ones positioned well for COVID, to it's going to be quite a battle test. And Target, as you named so far, has struggled with that test. What we're trying to do with the

next generation connected consumer product is find names that can do well in spite of all that. And I just flagged TJX as a name, a company that's grabbing young customers. The customers are proving to be very loyal. They can actually benefit from some of those supply mismatches that I talked about. And they'll benefit from consumers that are feeling a little more stress and trading down. So that's a name where we feel really good. But that's your largest position, right? Your top 10 makes up 40 percent. That's 5 percent weighting, followed by some travel names like Marriott, for example. And I understand demand is especially strong. And I think it was I think Sarah Eisen

interviewed the CEO of Marriott this week on on the closing bell. And they're all singing the same tune. The question is, where are the stocks relative to a story that's pretty much known at this point? Yeah, we think there's we think while the quality of the asset is well understood, we're not so sure that numbers fully reflect the half a trillion dollar of deficit versus what we would consider normalized consumer spending on travel. So we think there's a ton of pent up demand here for the consumer to spend a lot more on travel. Could drive some upside to numbers. As I said, we really like the business model here, and particularly in this inflationary environment, we're thinking so much about the impact of inflation on businesses and on consumers. We think Marriott's ability to reprice inventory very dynamically

puts it in a better place than a lot of other consumer businesses we could look at. Nike's been a bummer, and it's on your list. It's the fifth largest holding in your fund. What rights that ship? Yeah, well, first, let's start with the reason we own it. We think this is a fantastic brand asset. We really like the control that they have over their entire value chain from manufacturing to branding to distribution to pricing. And they're increasing that control and they've got great visibility

into OPEX. And then I think for the environment that we're in, the fact that this brand is so beloved, our data show that consumers are very loyal to this brand, are willing to pay up. You know, we think that ultimately the Nike consumer who loves that brand will ultimately bear this inflation cost. And in terms of riding the ship, we think, you know, the China reopening is another interesting dynamic here where, like everyone else in that market, Nike's business has suffered, but they've they've outpunchunched their weight. And I think they've demonstrated what a powerful brand they have, what a powerful marketer they are. I got to run. But before I do, I just wanted you to talk to me about a stock I know you like, Warby Parker, which I don't know any other way to say it, but this thing has been just terrible.

It's down 65% year to date. Is that the only reason you like it? No, it has certainly been a tough run out of the gate for them. We've been buying the stock very recently. We now like the value. And we think this is actually the poster child for what we're doing with our connected consumer strategy. So just to take a step back, the opportunity we see is that we've got two generations, both the size of the baby boomers, Gen Y and Gen Z, that are coming into their peak spending years. Number two, these generations spend very differently. They behaved very differently. I probably don't need to tell the audience.

They're just hyper-connected all the time. And then third and finally, that hyper-connectivity throws off a lot of data residue that we can, you know, we use data science to track and glean long-term insights from. And what those insights are on Warby Parker is that, you know, number one, they really greatly outpunched their weight with these younger demographics, which is a really great situation to be in since Gen Y is getting ready to hit that magical age of 40s where they're all going to need glasses. And the customer is just very loyal. They've got super high net promoter scores.

And they're selling a good that people need, which we think will hold up well to the extent that consumer environment does sour. Yeah. I appreciate your time very much. We'll talk to you again soon. That's John San Marco, Neuberger Berman joining us up next. We're tracking the biggest movers in overtime. Christina Partsenevelis all over that as usual. Christina, what's on deck? Unfortunately, I have another retailer warning about the future.

Shares aren't selling off as bad as expected despite this sales miss. I'll have that name. And we've got another all-time high today. Can you guess which sector? I'll have the answer right after this break. We're all over the action in the OT. Christina Partsenevelos is tracking that as always. Hi. Hi, Scott. Shares of five below. That's a retailer. They're falling over five percent right now after posting a one cent earnings beat. Largely due, though, to good cost management, but sales fell short. Comparable same-store sales, a key metric we often look at, fell 3.6 percent in

Q1 versus Q1 of last year. The CEO even acknowledged in the press release the softer-than-expected sales and echoed familiar words we've heard from a lot of companies, a challenging macro environment going forward, and also posted a much weaker outlook for the next quarter, specifically for revenue guidance, and then the same thing for full year guidance. Switching gears, we've got software company Zendex moving in the OT, just a little bit to the negative right now. And that's the latest news to hit the wires is that Janna Partners is suing the software company for its failure to set a 2022, so this year, an annual meeting. Jana's release calling on Zendesk board members and directors to quote, stop hiding from accountability after quote, inflicting significant damage on its shareholders.

The stock plunged today over 10% after our own David Faber's reporting revealed a deal for Zendex by a group of PE firms is, quote, less likely to be completed. And lastly, there's this tease. The shares of North Korea, North America's largest oil company, Exxon, soared to an all-time high today. The stock driven by oil hitting a 13-week high. You can see the stock is up even in the OT, up 1%. And this comes as the S&P energy sector closed at its highest level since 2014. It's America's largest oil company, not North Korea's. All right. Thank you, Christina Partsenebulos. Gosh. Up next, we have a trade alert.

One halftime committee member is making some late-day moves. He's going to call in. You'll hear about it next. We have a late day trade alert. John Najarian, co-founder of MarketRebellion.com, is making moves today and he wants to let us know about them. I appreciate that. What did you do? Well, Scott, you and I talked for weeks about KWeb, which is, of course, an Internet ETF that covers China. And then we talked about Asher as well as FXI. Well, BABA, for the last few days, this one all of a sudden just exploded today and moved up by, I think, $15 or something like that. We rolled up calls in BABA today, Scott. So it wasn't a brand new trade, but we

extended it because we think there's still more upside in it. And, you know, that's the case also with DraftKings, because two days ago we had really strong activity in DraftKings at the 15 strike when the stock was 13. As you know, I like buying the at the money call. So I bought the 13th. Now I took profits on those and rolled them up to the 15th that expire on Friday. So this is, again, deep end of the pool. It's got to move fast or we're going to cut and run in that case. But I really like the activity in both. And I love rolling up in the case of DraftKings because, you know, you've got to talk about those stocks, Doc, because the rug can get pulled at any minute, as we've already painfully learned, at least investors in those names have. They can go up a ton tomorrow. They can go down a ton by the end of the day. You just

don't know. Right. And it seems if the Chinese Communist Party, the CCP, isn't actively pursuing these companies and their demise, which they were for a lot of the last six or eight months, it seems like they've taken their foot off the brake there. It doesn't mean it'll move 15 bucks again tomorrow. But just as you and as Pete said on the show, I don't really want to own the stocks, but I'm more than willing to own the derivatives, the options. Yeah, no, no doubt about that. No doubt about that. All right, Doc, appreciate it. That's John Najarian joining us there. Up next, we're trading the uncertainty in the market. Our next guest lays out the stocks he is betting on to ride out the volatility. It's in our two-minute drill after the break. I don't think the environment is that rocky from our vantage point. Look, you turn on the news feed, it's incredibly high anxiety, adrenaline laced and all that sort of thing. Our world, when we're talking to customers, far more subdued, sober, normal.

They're doing multi-year large contracts. They're not falling off a cliff. All right, that was Snowflake CEO Frank Slootman sitting down exclusively with Jim Cramer, part of his amazing lineup out west. You can catch that full interview plus Jim's other interviews tonight. Cisco CEO Okta. That's a great lineup. Don't miss it. Six o'clock Eastern. Of course, only on Mad Money. It's time now for a two minute drill. Joining me now is advisor share CEO Noah Hammond. Noah, welcome. It's good to see you. Let's go through some stocks here in the time that we have your picks. And you have three of them. Dutch Bros, a name I'm familiar with because Josh Brown on the Halftime Report has picked this name.

He loves it. It did get downgraded today at J.P. Morgan from overweight to neutral. Yes. We liked it. Great growth numbers. They had 50% revenue growth. They opened up about 200, about 150 more stores, 370 stores to 538 stores from 2020 to 2021. 8% growth, a little over 8% growth in existing stores. And where they missed was on earnings, having some supply chain issues and challenges. We actually bought more that day. The stock dropped about 30%. And we've seen those shares actually almost double since acquiring them. So a little bit of a rocky road, but it's a growth company. It's a nice mid cap stock that we believe is going to be a very successful large cap stock. Yeah. Why is Marriott your hotel chain of choice in terms of ownership? Because that's the one you

want to talk about year to date. It's up about five percent. Obviously, there's a lot of buzz about the space. Yeah, we own a few of these hotel stocks, part of our sort of reopening trade. And we do think Marriott is well poised, especially not only domestically, but internationally. We've seen leisure travel start to pick up late last year. Now, business travel, business conferences are opening up. I know you guys just had a few of the hotel CEOs on over the past few days, and they're all saying the same thing. They have price flexibility. They have high demand. They have very limited supply. And for an environment where people are used to hotel prices changing depending on the season and the environment, they're able to really take advantage of that,

even though they are also dealing with their own supply chain issues, their own labor cost increase. And it's one that's really bucked the trend. When you look this year, Marriott International has actually been up while the S&P has been down. And so we think that's going to continue as the world, not just the U.S., continues to reopen. Last pick I want to talk about is short that you have actually, and it's Foot Locker. Why are you short that name right now? So, you know, we've been short that one for a while and really on technical reasons only. Now, this is a stock that was very popular during the meme stock trade, if that's a way to describe it. Up 150 percent during that time frame, the time frame roughly April 1st of 2020 through December 1st of 2021.

During that time, of course, the S&P grew as well, thanks in part to a lot of Fed easing. But I think that stock during that time frame Of course, the S&P grew as well, thanks in part to a lot of Fed easing. But I think that stock during that time frame was up 150. But broaden the view out a little bit more. If you look at year to date, Foot Locker has been down 25 percent. One year number down 47 percent, even over the course of the last five years, down 40 percent. So it's just one from a technical perspective only. We've been short. When that trend starts to change, we'll cover it. Okay. I understand. Noah, I appreciate it. That's Noah Hammond joining us. All right. I'll see you soon. Up next is Santoli's last word. We're back in two minutes in overtime. Results of our Twitter question. Now, 54% of you say tech will be the best performing sector

in the back half of the year, agreeing, I suppose, with Tom Lee. To Mike Santoli now for his last word. Well, pain tolerance, I guess, would be the phrase. I think we're in this sort of slow-moving, low-intensity test of exactly what the market's pain thresholds are on a couple of fronts. Obviously, yields, call it three and a quarter on the 10-year Treasury yield. That was the high, right? That's pretty much the high. Also, late in 2018, that was the level that seemed to give the market some jitters. And also oil, maybe 130 on brand. I mean, it's

only a few bucks from here, whichever way you want to play the record levels or at least the 14-year high levels. And even earnings revisions downward. I mean, I think that's something that's been a rolling issue. Retailers arguably have kind of absorbed it reasonably well so far. I see low intensity because volumes have been really light both on up and down days. We're waiting for that Friday number. That's what you really feel this is, right? It's a wait for the CPI? If it's only don't make any sudden moves beforehand, because I don't think it's necessarily going

to be decisive. It's not going to really convince anybody 100 percent, yes, peak inflation, no, or which way the Fed's going to go. I just feel like it's hovering out there. And, you know, it looks like the market has tried to make the case that it's priced in a lot but hasn't priced in enough. It's always the question. It's going to be hard to think that stocks are going to be, you know,

going down if the CPI is where people want. You would think. But, you know, I mean, never know, obviously. Unless the sellers have just been kind of, you know, keeping out of the way as well. All right, good stuff. I'll see you tomorrow. I'll see all of you as well. Fast Money begins now.